Guaranty Trust Holding Company Plc (GTCO) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Guaranty Trust Holding Company Plc Full Year 2022 Investors and Analyst Conference Call. [Operator Instructions] Please note that this call is being recorded. I'd now like to turn the conference over to Mr. Segun Agbaje. Please go ahead, sir.

Good afternoon, everybody. Thank you very much for signing in. On the call with me today to help maybe shed more light on things you have known, pleased to have MD of Guaranty Trust Bank, you have Banji, who's the Group CFO. You have Kelvin, who runs the funds management business. You have [indiscernible] and Tom who runs the PFA. I will basically the anchor and answer what I can. Where I can't, I'll ask one of these people to help me. We have had the presentation online for about 2.5 days now. So we won't be making a presentation. We'll be going straight into questions and answers. So thank you again for signing in and calling in. And yes, let's start with the first question.

[Operator Instructions] The first question comes from Ronak Gadhia from EFG Hermes.

My questions are really twofold. I guess we're entering in a period of uncertain times with the new regime coming in. So maybe could you just talk us through about some of your base case assumptions on some key economic indicators like inflation, exchange rate, interest rates, what you expect from that and what potential impact that could have on the business? And the second question is on the nonbanking segment, particularly the payments business. Could you just share some -- what some key KPIs, how many merchants do you have on that platform? How many banks are you clearing for? And what we should generally expect from this business over the next 3 to 5 years?

Okay. Thank you very much, Ronak. What I'm trying to do, I'll try and expand a bit on each question so that hopefully, I'll take some of the things other people are thinking about. As you said, in terms of what we see, we definitely have a new government coming in. What do we see? Let me start with foreign exchange. What you may see here if you listen to all the candidates who campaign as well as this president is everybody talks about convergence. So we'll all have to figure out what convergence means. Does it mean NGN 650, doesn't mean NGN 700, does it mean NGN 750. But one thing I'm clear about is that convergence means we will have a devaluation, whatever that is and where it ends up is, will we plan from what were stress testing our balance sheet and our capital for us to do valuation. In terms of interest rates, as you started to see, 1 year builds were like 14.7%, yields of about 17%. So we think you're going to start to see a move upwards in interest rates going towards inflation, which is about 21%. I think once you start to do this, there will be a tempering of inflation. We don't see a runaway inflation. I think once you see a devaluation and you look at interest rates. We have looked at these things in terms of a couple of things. Our loan book, our capital [indiscernible] and we feel pretty comfortable. If you have a long position, it means you will add something to your profit and to your retained earnings. We will, however, also look at certain impairments that may run through the balance sheet and maybe an opportunity to take it. But for us, normalizing the macros, which is what we would like to call it this year's positive for the bank. In terms of the subsidiaries, let me start with -- I will start to end up with Squad, which I think will Habari -- which people are a bit curious about. First of all, as you can see, all the nonbanking subsidiaries are P&L positive. You have our funds management business that did a profit of about NGN 275 million, went from about NGN 27 billion [indiscernible] management to NGN 108 billion at the end and growing. I don't want to spend too much time, people asking more questions, maybe later I'll shed some more light. In terms of the PFA, it's growing as well. We are not that bullish on what you call AEF with about NGN 59 billion of the year and growing. AEF versus marine core sale and would like aerospace which we believe are more sustainable kind on retail. And if we hit somewhere around NGN 100 billion in AUM this year, we're happy. In PFA, in forms management, if we kind get to about ¨, I think we've done our work for this year. Now in terms of Habari as you've seen, we did tell everybody we were going to very transparent with Habari and we're going to publish the figures. Habari did NGN 926 million. I know there is a lot of the fintechs very concerned because we don't see their own figures. The profitability of Habari is actually very easy thing to understand if you understand the business model. The business model of Habari was never to burn equity, to gain market share. The business model of Habari was always to put something together where the company could pay for itself. And that's what you've seen in the first 6 months of the year. The money has come from really 3, 4 different things. One is what we call value-added services, which is basically airtime and SMS. In terms of airtime, Habari about NGN 12 billion a month. And in terms of SMS transaction, that's NGN 540 million. Also, the capital of Habari's intact, so we have investment income. And then we're also then making money from online, offline acquiring, which is growing. The first quarter is actually much better than what you saw at the end of the year. So we are ramping. In terms of online, off-line and switching, we're approaching NGN 500 billion a month. The aim is by half year to make sure that the online, off-line [indiscernible] in switching business covers the expenses of Habari completely. So everything we get from investment income and -- from investment income and value added services will go straight to the bottom line. And we are very optimistic we will achieve this by half year. So yes, that really is the Habari story, but if you would like a bit more of me to shed a bit more color, very happy to.

Just one quick question also to add. What's the -- can you give us an update on where the securitization process is. It's seems earlier in the year, there was some momentum towards that securitization process, but things have died down since the election. So maybe you could just update us where that process is, and what could -- what that could mean for your NIM?

Okay. Well, honestly, we haven't heard anything about securitization, but again, that's a potential upside because we're asked to sterilize our CRR and [indiscernible] CRR and put them into ways and means type bonds, then it can only be better for us. The CRR earned 0, special bills earned 0.4%. So if that does happen, that's just another upside for the second half of the year, but there hasn't been any real talk of traction that I would say is meaningful enough to need to comment on.

Okay. And what would your excess CRR be? Let's assume the minimum cash reserve requirement is 30%. What's your excess CRR above that level?

Okay. We're NGN 1 trillion. NGN 1 trillion is about 36%. So our excess CRR must be somewhere around to about 40% -- yes, I think, yes about 40% or NGN 400 billion, I think, because we're 36% CRR. So we would be doing about 4% on NGN 1 trillion. It would be excess for us. [indiscernible]

The next question comes from Timothy Wambu from Absa.

My first question is with regards to Ghana. And just to understand from the presentation, the impairment of the eurobond is this only NGN 1 billion eurobond down the least impairment in January or February. Can you just shed some light on the private sector lending performance in Ghana. Should we -- I think I'm concerned with regards to asset quality. The second question is on your NIM outlook. It appears modest from my perspective given that it's lower than your effort to guidance, maybe speak a bit further into that, why you're only gaining at 7% lower than 8% you had original guided for FY '22. And then lastly. So in response to the potential removal of the subsidy, we've seen the FG not to propose an increase in the civil servant salary about 40%. I just want to get a sense on whether the private sector will be looking at something similar in just to [indiscernible] I don't know if you've given too much thought. I would just like to get your view on that.

Okay. Thank you very much. Simple answer regarding impairment is we took an impairment of 30% on all the eurobonds irrespective of which one and for the one we held in [indiscernible] 45%. Asset quality, we don't have a lot of issues in Ghana in terms of assets [indiscernible] about 3% NPLs. We've been very conservative. And if you look at our loan-to-deposit ratio, about 28%. So we really don't expect a lot what happens also in terms of asset quality. The problem we've had in Ghana, and that's why we put the slide we're very transparent about it is and rather fortunate, we were reckless in Ghana but all that was based upon Sovereign debt. NIM guidance, you might be right. We might have been a bit conservative. It's [indiscernible] and the fact that we were flat 2021, 2022 at about 6.6%. If we do see some yields pick up, it's not impossible we'll get the NIMs to 8%. But again, it depend how much CRR is being taken off us and how much special bills because if you look today, 56% of our LCY deposit is based on special bills and CRR. So that really, really new to what you make in terms of your NIM. But if there's less of that and there is an interest rate pick up, I think the NIMs at about 8% is not an impossible target. In terms of really what's going to happen in terms of subsidy removal. Your guess is as good as mine. First, I think, subsidy removal is a very delicate issue. And we'll have to see how it'd be handled. If you remove subsidies, that's if the subsidies removed -- And I think generally, we're all going to have some wage inflation because especially for those who are lower down [indiscernible] and those who might not consider professional staff, you will actually have to increase their salaries and you might see a bit of wage inflation in the second half of the year, that's a subsidy removal. I don't know if I answered your questions correct.

The next question comes Oluwaseun Arambada from FBNQuest.

Just a few questions. And the first will be around your loan growth policy. I remember in previous calls, you have talked about much of your loan growth coming from your Nigerian business. And then maybe not so much of a compelling reason for an aggressive loan growth in other markets because of the higher yields, you're able to look it from fixed income Securities in those markets. But with the Ghana situation, how are you rethinking your loan growth policy? Are we going to see stronger growth numbers than what we shortlist for last year going forward? And also in that streamline, when you see higher yields in other markets, can we know which markets exactly we are now looking at if that's still the story for this year. Something else in line around asset quality. I would love to share some update on your Aiteo exposure. And I also recall -- I think that was at the H1 call, you talked about WEMPCO and [indiscernible] restructuring. So I would -- I can update on that. All right. Secondly, on your noninterest income line, I saw about NGN 800 million -- an income of about NGN 800 million on the asset management income, and that was not existent in the previous year. So could you just shed some light as to that income. For your payments business, last conversation was that Habari was about 0.3% to 0.4% of group and that you had a target of 1%. So would appreciate like a progress reports on that end.

Okay. Let me start from the last one because I can have chance write it down quickly. As you can see, as of the end of 2022, the subs -- the nonbanking subsidiaries were about 0.8% of group. So what I said about Habari is on, we're about 0.3%. We're hoping that at about 2023, the nonbanking subsidiaries will give us 2%. And if you look at the figures, like I said, first quarter, we're pretty optimistic that we'll track. Now let me now -- our funds management, which you've spoken about, those are just our fees for our assets on the management. As you can see, we've gone from NGN 27 billion to NGN 108 billion. So I'm not the expert depending on whether you have a mutual fund, do you have own funds which are managing in a proprietary way, that's the income we've earned from it. As we showed in our presentation, that's about NGN 108 million assets under management. In terms of loan growth, Nigeria is still where the loan growth is going to come from. Obviously, we're very -- we're always very careful it was about loan growth in Nigeria because we still believe the challenges in the environment. The loan growth is what the case what we do in terms of deposits. So you see that we didn't meet our guidances for both is because one pulls the other. There's no point of going 25% deposit growth if all we're going to do is park it in CRR or special bills. So we grew the deposits 4%. We grew the loan book 5% based in Nigeria because that was what we saw in Nigeria and we're being a little careful. In terms of Ghana, we're not going to change. Obviously, any country that is defaulted in terms of sovereign means you have a harsh operating environment. And if you go out and book loans aggressively, you're just going to pick up NPLs. So what we're doing in Ghana is we're not going long, even when we go investment securities, we're going treasury builds. They also have like 14-day placements, which is what we're playing. We're not going to because of -- yields coming down going to a loan book because you can tell the environment, what you have inflation at about 40-something percent. I'm not sure that's where you going grow a loan book. Everywhere we're approaching seeing high end yields in countries like Kenya, which historically in terms of fixed income securities were low yield countries are up. So as inflation is up, we go take of the -- we can basically take advantage of the yields in those countries. The only thing we have to do better in those countries is drive our low-cost deposits so that we have enough scale to go into that. But nothing has changed. We're not going to be aggressive outside Nigeria on the loan book and even in Nigeria we're going to be very cautious. Yes. The restructured loans, Aiteo and WEMPCO, they're still there. We're battling them. These are our own restructured and forbearance loans each about NGN 280 billion, which is about 16% of our loan book. There hasn't been -- there has been progress. When you're dealing with so many banks and one customer, we all have little things we want to see in the restructure. So I wish I could tell you that we are finished. But the good thing about all this is that I think the Central Bank is watching very carefully what you're doing with this forbearance loans in terms of how much dividend they approve for you so that even if we all don't get out of all these forbearance loans, would have built up the capital and equity to deal with them. I hope I've answered all your questions.

Yes, you did. Just a follow on to that. So just a follow-on. So in my thinking right, so you said the forecast would be a treasury bills [indiscernible] in Ghana. And then you're probably looking at higher yields in markets like Kenya. To my mind, does that on mean that we can expect to see some form of margin compression in 2023. The asset becomes obviously which are loan growth in Nigeria. And you are [indiscernible] instruments in Ghana. I mean that's what I'm thinking. I mean, also more...

No. Absolutely, not at all. Because remember when Ronak spoke, if you look at Nigerian yield on your fixed income is going up. Your 1 year you have a yield of 17%. We're all going to have to move our loan book pricing. Our loan book yields for last year was 18.8%, we're definitely going to better that this year. The fixed income portfolio was 5%. We're definitely going to better that this year. So no, you're not going to see margin compression in Nigeria, which is easily going to be about 65% of this year's profit. In Ghana, might we see some margin compression? Possibly, but we'll try to make it up in terms of the size of the balance sheet and the size of transactions. The other countries, no, in fact, it's going to be the opposite because your fixed income portfolios are going to give you better yields. So I actually think you will see better NIM in 2023 than we saw in 2022.

The next question comes from Muyiwa Oni from SBG Securities.

Sorry, Muyiwa, your voice -- the things fluctuating so it's going in and out.

Unfortunately, we still can't hear you clearly. If I may just ask if you could please just disconnect and reconnect and then just check your connectivity, and then we will come back to your question, if that's okay. In the meantime, we will move on to another question. The next question comes from Damilola Olupona from Chapel Hill.[Operator Instructions]. Unfortunately, we cannot hear anything from that line. We are going to move on to the next question. The next question comes from Abdulrauf Bello from WSTC Financial Services.

All right. My question is a follow-up to your response you gave on loan book growth. So you mentioned that you're very careful about growing loan book in Nigeria because of underlying challenges. So I got that. However, when I look at EBITDA of your peers, in the banking industry and the big guys, it is significant loan book growth among those guys. I just want to ask that given that you are faced with a similar environment, how would you describe the difference between your approach and perhaps their approach to loan book growth? I just want to get a sense of how others are able to do it and you're seeing something different?

I think you are the analyst so you are the best person to answer that question. I think it depends on strategy. It depends on your interpretation of macros. It depends on what you see. But one thing I will tell you is that the easiest thing to grow in banking is the loan book because everybody is ready to take your loans. But you are the analyst and you have to determine whether we have clear skies or whether you see some bumpy skies ahead. It's just everybody's interpretation of how they see the macros.

Okay. So just one more question. And this one has to do with the quality of your internet banking services. So very recently and quite very frequently, we get to see a lot of companies, a lot of dissatisfaction around your internet banking service. And I'm able to say this because GT is my primary bank, and I sometimes know what I go through with the services. So I just want to ask you, what is the reason for these frequent downtime? Is there a capacity problem or what could be the reasons for this problem?

Okay. Before I give you the reason, let me apologize to everybody. It's something that we're taking very seriously. And I'll give you the reasons, but I apologize sincerely and please bear with us. It's a couple of these things. I think that our core banking application is not big enough or strong enough for how we've become. And so the architecture, we have to build around it, in my own opinion, is not sufficient to carry us. So what we are going to be this year, I think today, we might be finalizing the contract for a new core banking application. We will start things from mutation a new core banking application. Under that core banking application, we would design an architecture that is more agile and allows us to respond quickly where we have problems because in IT, there will always be problems, which you have an architecture as flexible, which hopefully is what we've built around Habari. So I apologize. It is a combination of both the architecture and infrastructure and the core banking application, but we will resolve it this year, that we promise you. And we will even before we change over to the core banking application, make sure the service goes back to normal. So please accept my apologies again.

[Operator Instructions] The next question comes from [Curtis Schacht] from Sustainable Capital.

I've just got 2 questions. My first question is just around your operating cost. Just give me some color on how you're thinking about your employee headcount and the average cost per employee. Just looking at it seems best in my numbers that the average selling cost has lagged inflation? And then my second question, just on the USD deposits. But it seems there's been quite a steep buildup in those deposits. So I was just wondering where that buildup has come from and how sustainable those deposits are?

Okay. Thank you very much. Let me start with [indiscernible] then we'll go to cost. The USD deposits come from 2 places. One, regional retail deposits to individual deposits. And I think you'll begin to see what I call rational behavior. If people believe there's going to be a devaluation or whatever you start to [indiscernible] savings out of local currency. The second place is coming from is, obviously, we have oil producers, marginal field producers. And with the higher oil price even producing the same quantity of oil [indiscernible] so inflows coming into those accounts greater, larger USD deposit base. So really, those are the 2 places that deposit growth is coming from. Operating costs, just as I said earlier on this call -- on this call, we think that you will be facing some wage inflation. You will also see that our personnel costs will go up. We are kind of outsourcing a system in terms of IT and IT salaries, there's a lot of attrition around IT personnel. So we're going to have to come up with the system, where you will see an increase in compensation. So the short answer is, while you're right, that it's lower now, it will not stay there because we have to deal with a lot of the attrition issues that we're seeing.

The next question comes from Josh Arowolo from Stanbic Pensions.[Operator Instructions]

Can you hear me now?

Yes, we can.

Just wanted to speak a bit regarding the loan growth. I know all the [indiscernible] said, it's cautious. But what I look at is relative to the previous years, it is quite constructive. It could be positive. The guidance is 15%. So my question really is, if I'm correct about the positivity on the macro front, what drives this opportunity? And then two, what sectors will drive this loan growth? And then any other details really regarding why management is forecasting or guiding 15% loan growth? It would be appreciated.

Okay. Thanks a lot, Josh. A couple of things. The optimism comes from the fact that I believe that we will have to move in terms of macros. I think, we'll have to have some source of convergence, so we do valuation which will help kick start the economy. I also think that as interest rates are normalizing close to inflation where your 1-year treasury is 17% against 21%, that there is opportunity to grow the loan book and that things will generally be better than the second half of the year and that we will take more of the charge than we have in the past. What sectors do I see? I mean fast-moving consumables still remains a big sector for us and a high-growth area. We're not going to be aggressive in the oil and gas space. I think we've got a feel of that. We'll do some manufacturing. We continue to like the retail sector. The retail sector also, if you look on what we're doing with SMEs need to be at about 0, we're now 3%. So I think those are the places we expect our loan growth to come. Also, a couple of years ago, agriculture, we were 0. We're now at 8%. So we'll do some [indiscernible]. So it will kind of be from those sectors. My optimism comes from the fact that if we adjust some of our major macro indices to what I think we need them to be, then there will be a general tailwind that economy have seen in the second half of the year. I don't know if that answers the question.

yes, It does. Just one more question if you don't mind. Just wanted to also talk about the fine and U.K. subsidiary, right? Just wanted to find out how is management is -- actually has that been paid, is that income statement, let's say, Q1 is that going to be spread across for the year? Just want to see how the [indiscernible].

It's been paid, it was paid in 2020, unfortunate incident. Again, we apologized early, it was something that happened in 2016, which we thought had gone away. COVID years, everybody went to sleep [indiscernible] at the end of 2022. Because we started the negotiation in 2022, we paid early in 2023, it's already on the books. I don't want to preempt the first quarter results for U.K., but you will see that we are out of the woods, it was paid last year. You will not see it in the P&L of this year, and the U.K. is doing very well. As you can imagine, they're now approaching an environment of 4.5% interest rates. Mortgage rates about 6%, 7%. So the U.K. is doing very well.

The next question comes from Kato Arnold Mukuru from EFG Hermes.

Hello, can you hear me?

Yes, sir. We can hear you.

I have a real request because Ronak and I have been doing a lot of work comparing trading income gains across the largest banks. We've been so frustrated by the inconsistencies in disclosure. As you can imagine, you've reported just over NGN 2 billion in gains on treasury bills. Yes, you have a competitor that's telling us that they made NGN 214 billion on treasuries. Now the difference in the balance sheet is not that big. I can't understand why there cannot be some type of industry standardization of how these treasury gains -- gains in treasury bills are booked. And I wondered to what extent we could ask you to kind of push either the CBK with auditors to standardize this because some of these numbers just seem so bloated and make it almost impossible to understand even how they make their money. That's my first kind of comment. My second thing is on the loan growth, by the way, I think the banks that are growing very aggressively in this market are crazy because asset quality must be extremely poor. I couldn't agree with you more, well said, sir.

Thank you very much, Kato. At least, it's good to [indiscernible] make it in the marketplace so that I can be cautious. In terms of trading income, honestly, we've tried. I really think one of the ways we can all do it is that as investors, we should all to the accounting standards board and tell them to call off and maybe rest with the auditors. There should be a uniform way of reporting, trading gains, derivative gains. I really think maybe if knowledgeable investors like yourself write to the FRC, Financial Reporting Standards Board, or FRS, what they call and we should complain. We see a standard way, where all of us report and we should come forward. It makes it very difficult to compare the results of banks. So I could not agree with you more. And maybe that would be a good place to start would be my suggestion.

I would certainly do that.

Yes, please. I think you should write them a strong letter. We should identify the areas where we would like the uniformity and then we should call the auditors by the time we audit half year, we should all be help to those standards.

The next question comes from Lanre Buluro from Chapel Hill Denham.

Quite commendable on your admission that your technology platform wasn't adequate to sustain or to provide the service, given the growth, which allow your peers also do admit to that. I didn't get the Aiteo answer, if you just provide an update on that. Similarly, there was some -- there was news last year -- early this year on Aeroton and NNPC and it -- we're quite aware your exposure. So it would be nice to have an update there been any impact on your books regards that. That was I guess come back to the accounting standard in case that raised. Q4, NGN 52 billion in valuation gains, trying to understand what exchange rates you use at the end of the year and we're aware you are also long on dollars, rather [indiscernible] number for Q4. And you kind of like -- if you go on a run rate for the year in terms of what you've been putting for valuation gain. We have had a quite -- didn't call full year results from a profitability standpoint. So it would be nice to understand what exchange rates you used? And how do you see that in 2023. GT has been a bellwether stock that struggled over NGN 20 billion in PAC. We haven't seen that since. Similarly, ROE of 20% in the past. I think this past year, you booked around 18% in ROE. How do we see this going forward and get GT back to being a favorite stock for investors. That will be all for me for now.

Okay. Thank you, Larry. If I was an investor, but of course, buy. GT remains probably one of the strongest stocks in this market by the decisions we've made. You mentioned the 2020 results without mentioning the most important thing that happens to those results, which is that we took NGN 35.6 billion loss in Ghana as a result of sovereign default. If you add that back to the performance, the performance was 2022 was actually NGN 253 billion, which is 13% up. We believe we have done the right thing and that we have taken the billion losses in 2022. Our disclosure is always as transparent as anybody. And so if you look at the investor presentation, we dedicated an entire slide towards our -- what our exposure to Ghana was, which was NGN 167 billion. We showed you impairment on each of those instruments. Eurobond, local Ghanaian cities, local USD and treasuries. And we took head cut all of them. Results of NGN 35.6 billion loss. So for us, it was actually a very good year. And we were [indiscernible] conservative ourself and then we expected Ghanaian sovereignty to grow back. So we take it and you see first quarter results. I still think is the best stock you can hold. In terms of revaluation gains, again, we're very transparent. And if you had looked at your investor presentation, you will have seen that the revaluation gains were compared to the NGN 461 on a long position of now $1.3 billion and there, you get it. And if you have a complete -- if you have further devaluation you will be able to calculate between NGN 461 and what the rate is on that date on a long position of about $1.3 billion. It will give you what the gain is. We might always choose to take some of it as impairment because we run a very conservative stats. On Aiteo, nothing has really changed, which I explained to those speak up. We're also trying to restructure. Hopefully, we're getting in the end of it, you're trying to carry a lot of banks, and also the customers who have more views on what restructure should look like. But hopefully, we're almost at the end. We don't have an Aeroton issue. The issue around Aeroton is change of operator. Change of operator doesn't affect anything. I think the operator has changed. The operator will be competent enough. The most important thing to us is the oil comes out on the ground or comes to the accounts to service the debt. So we don't really share it. [indiscernible]

Great. And just one last thing on loan growth. Are you baked in the forecast, is the devaluation baked into that 15% growth?

No. Actually, because if we do have a bit of a devaluation and when we get a tailwind from now we expect we'll do better than 15%. So 15% even, we are hoping will be LCY growth.

The next question comes from Karim Sawabini from Moon Capital Management.

I totally agree with Kato's comments about trading gains. But I wanted to ask what has been the focus of discussion with the incoming administration. As regards to the financial sector, what's been the level of openness and transparency between the private sector yourselves and the incoming government? And then the other question I had is on the currency, do you see it more of a gradual devaluation? Or is this a step function? And what are you assuming or what's the embedded assumption in your guidance?

Okay. Thanks, Karim. What we see, I don't think there's a lot. You have to allow this administration to finish their own tenure before maybe they'll be engaged with. If you -- if I were to be honest with you, we haven't really built much of the devaluation into the guidance we've given for 2023. Because we really don't know. The place we do build a devaluation on when we do is when we stress test our balance sheet. So we've done 3 scenarios. We stress test a NGN 600 rate, we've done a NGN 650, and we've done NGN 750. And we've tried to see what it will do to our profitability, what it will do to our capital and make sure that we have enough capital. And I think in our worst-case scenario, capital adequacy down to about 18%. So in terms of profitability guidances and the guidances we've provide, we really haven't put the devaluation in, but we've done a stress test internally of what the devaluation will do to our capital using those 3 rates.

The next question comes from [indiscernible] from Bloomberg.

I just want a bit more color what you said about operations in Ghana. What was loan growth in that country last year? And what will it likely be in 2023?

Our loan growth was very low. It was probably around 5%. I think we'll still keep it there. I might -- so my home is that if you're running over 40% inflation, it's going to be very difficult for businesses to make money on payback loans. So I think we'll remain conservative in terms of loan growth in Ghana. And I would hope that as investors, if you're investors, you would understand why because apart from a high inflation, you're talking about a country that has defaulted on the sovereigns and has not even yet given complete clarity as to how it's going to handle all the default scenarios. So it's definitely not a country to be very bullish on in terms of loan growth at this time in my opinion.

The next question is a follow-up question from Ronak Gadhia from EFG Hermes.

Just a quick follow-up. You said on the extreme scenario, your capital adequacy ratio drops to the 18%. Is that before you consolidate year-over-year profit or after consolidation? Just a quick on the second one. Sorry, you may have mentioned this before, but just to clarify, what's the net long USD position for the Nigeria subsidiary after taking into consideration the derivatives book that the bank hold?

Okay. If I take the positions $1.3 billion is the net loan position. In terms of our stress -- sorry, in terms of what we've done in terms of stress testing, it is before consolidation when we did something that we think is even very conservative. We basically took impairments for all our forbearance loans against the profit before arriving at that capital. As you would impair all the loans where forbearance is on out of the profit from the loan position before calculating the capital adequacy.

Right. Okay. And I guess when you accrue the profit and that capital position then improves.

Yes, absolutely. And also, if the impairments don't happen, then again the capital improves significantly.

Understood. And just also one on the other follow-up. On the cost-to-income ratio guidance of 50%, does that include the cost of the new core banking system?

Yes, it does. It does. And so we'll amortize that into February. So what will hit us this year would not be that we -- it's in there already.

The next question comes from Colin Smith from All Africa Partners.

A few questions, please. Firstly, on the Ghanaian bonds, with the restructuring obviously still ongoing. Are you able to say whether any further impairments were taken in Q1? And do you consider the 30% impairments from the Eurobonds to be conservative or not? And secondly, on the GDRs in London, I understand that the GDRs account for around 5% of the total shares at the moment versus around 13.5% when they were not floated. And obviously, shares can only be moved one way from the GDRs back to make us rather than the other way. Could you explain why the fungibility is limited to just one route, and whether GT and the relevant authorities would consider allowing movements both ways at least back the original 13.5% outstanding.

Thank you very much. Well, on the Ghanaian bonds, we hope that we've seen the worst. But like I said ealier on the call, even the Ghanaian government has not yet reengaged on everything other than the local bonds. So we're thinking what we think is conservative. We've done 30% on the Eurobonds. We think asking for everything else even asking to the 30%, we think will be a bit ridiculous, but we haven't. But the comfort you will have or you should have is that for the first quarter, we're not accruing the interest on all these bonds. So essentially with kind of warehouse interest and if there are further haircuts, we can always use that to buffer some of the haircut. We would be very shocked actually if they ask for further haircuts than this on sovereign debt really. So I think we've been conservative. In terms of the GDR convertibles, we can always engage the government. I think it was done this way because of the exchange controls and the dollar impact is going the other way. So -- maybe if we get to the second half of the year, there's more dollar liquidity, then we can go back and revisit the fungibility issue. From a perspective of the 5%, though, I'm sure you'll see if you own them that the dividends are paid on time, everything is paid on time. So the only thing is the fungibility. And if we get to the second half of the year and the macros are looking different and liquidity looks better is something we can revisit.

[Operator Instructions] The next question comes from Sideeq [indiscernible] from [indiscernible] Securities.

So just very quickly, I wanted to ask what your outlook is for your funding cost. I can see where the funding cost actually increased in 2020. So I would like to know all in about funding cost in 2023. Also, I would like to know what you expect to drive the PBT for 2023. So following so conservative decline in PBT in on 2022, expecting a 30% the increase in PBT, it's quite optimistic so I'd love to understand what you think about it.

Okay, Sideeq. I'm going to repeat what I told Larry, again. To determine what our growth is for 2023 on a PBT basis. I think it'd be incorrect to think it's a 30% increase. Because if you pull back the 36.5 (sic) [ NGN 35.6 billion ] impairment we did for 2022, the PBT was actually NGN 253 billion. So the actual growth would be NGN 253 billion to NGN 280 billion, which we're pretty confident we will meet. And as we published first quarter in about a week, you will decide whether you think we'll meet it or not. So I would say no more than that. But please not look at it at the 30% growth, you're really not going from NGN 240 billion to NGN 280 billion. You are going from about NGN 253 billion to NGN 280 billion because we don't expect -- we expect that we've taken all the impairments we're going to take. In terms of funding costs, we had about 1.24%. We think we can hold 1.24% for the year. We really don't [indiscernible] market increase in NPL going forward. So I think about 1.24% in terms of cost of fund is good rate to use for 2023. I don't know if I've made myself quite clear on this 30% increase. I think it's very important that people understand that the NGN 36.5 billion (sic) [ NGN 35.6 billion ] that we took in Ghana was straight to the P&L and that if you put it back, it was actually 15% increase on 2021.

The next question is a follow-up question from Curtis Schacht from Sustainable Capital.

I have just a question on your return on equity guidance for 2023. Just given that this -- if you haven't baked in any revaluation gains, I was curious to hear what the drivers are that's causing the increase from 2022 to 2023. I mean, have in the back of our mind, you would have earned an ROE of about 22%, excluding the impairments. So just curious what are the key drivers for 3% increase to 25%?

On the ROE you say. We also have left a bit of a tailwind for devaluation, which we didn't put in the other figures. And we figure that no matter how smaller devaluation we have that tailwind will get us there. And so we've kept some of the other parameters quite conservative and let out the devaluation gains from them on the long position.

So if I understand correctly, it's mainly the revaluation gain getting from 25%?

Yes.

At this time, Segun, if I could please hand over to you for closing remarks due to time. Thank you very much, sir.

Well, thank you very much, everybody who signed in. Hopefully, I answered your questions sufficiently. Yes, thank you. That's about it.

Thank you very much, sir. Ladies and gentlemen, that does conclude today's conference, and thank you very much for joining us. You may now disconnect your lines.